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S&OP Application in Different Environments Questions

DE1. Do companies that are successful with S&OP typically have centralized or decentralized operational management?

There are examples of both. Some are highly centralized, with a single VP in charge of each function, reporting to a single CEO. This is often the model in a smaller company. Others have general managers or product teams responsible for the entire performance of a given product line, and only the very large, capital-intensive decisions go to the CEO. In some cases, manufacturing is more centralized or decentralized, than sales or marketing, or product development; in other cases, it’s sales or marketing that's more decentralized.

DE2. How does S&OP apply to supply chain networks that are stable vs. ones growing by acquisition?

Whatever network of suppliers exists, if it's changing, growing by acquisition or any other means, that could mean it's even trickier to balance supply and demand until stability is reached. S&OP is the best management handle for doing this, providing management the ability of monitoring how changes are progressing, and then slowing down or speeding up the supply chain changes plans based on that.

DE3. Could you comment on the need for Sales and Operational Planning in an environment that is primarily a tier 1 supplier to the automotive market?

Here demand or mix be changed by any sales or promotional activity.

The nature of the business lends itself to be reasonably predicable as auto production is stable except for occasional periods of down weeks for inventory adjustment. It is operated with about 11 days of total inventory.

In this kind of environment, demand accuracy and variation should hopefully be minimized. However, we think S&OP still has a role to play. First, it can act as a monitoring device to see indeed, how accurate the demand plans coming from your customers really are. And the emphasis should not just be on the last month, but on how well out into the future they are predicting changes or shifts in volumes, since you obviously would need lead time to adjust your production rates.

In addition, you may have the luxury of focusing more on the supply side, and how to further reduce inventories, costs, and take advantage of opportunities into the future. There should be an equal emphasis on monitoring supply reliability and identifying opportunities to reduce inventories and costs.

And as always, S&OP provides the future visibility to begin planning for new products, new contracts, or major shifts in demand, with enough lead time to efficiently and effectively plan for reliably supporting these demands.

DE4. In a smaller organization (30-40 employees), can you combine some of the S&OP steps (i.e 2 meetings)?

Yes, Best Practice experience suggests that in smaller companies, there may be only one meeting to cover the activities typically done in both a Partnership and Executive meeting. This is often because the people that would attend both meetings are virtually the same in a small company, and because in smaller companies, senior management often is very hands-on and handles the level of detail typically covered in a Partnership meeting, as well as participates in those detailed decisions.

DE5. Our global S&OP process is more like a consolidation. Each zone makes decisions in terms of sales, production and stock in normal situation. Unless, there is problem in which the zone cannot resolve by themselves, then they will ask for an executive S&OP decision. Is it a normal role of global S&OP?

Yes, this is typical. In such cases, by exception, the global group may actually look at a regional family when necessary.

DE6. In the companies you have dealt with do you find that most have a centralized Materials Management function vs. decentralized through a multi plant environment?

It varies quite a bit regarding centralization vs decentralization. In companies where the capabilities and resource allocations between the locations overlap or interconnect quite a bit, and where making maximum use of all the resources is critical, there is often a centralized materials function (see Eli Lilly as an example from our S&OP -- Best Practices book).

In companies where total capacity utilization isn't as critical, and where different locations are very devoted to certain product lines exclusively or serve certain regional or vertical markets exclusively, it is often decentralized with each location managed by being held to meet certain performance objectives such as on time delivery, inventory turns, cost, etc. Sometimes a small central group works on fostering common, best practice processes, without any specific line or product authority. (see Unicorn Medical and Coca-Cola as examples from our book).

Perhaps what is most frequent, is to see companies to switch back and forth between these approaches over the years, often when there are either performance shortfalls, or top management changes.

DE7. When people refer to a Supply Chain organization do they typically have an associated manufacturing facility reporting through Supply Chain or do they have Manufacturing typically on par with Supply Chain and reporting to the same senior manager?

In some companies it's just an expanded Operations dept that encompasses Materials, Purchasing, Outsourcing and Manufacturing, all reporting up to a senior VP. The plants typically report up to a MFG director, or into regional or product oriented groups.

In other cases, (more prevalent in the 90's) Supply Chain doesn't directly include manufacturing, reporting to a separate VP, who still may have a common boss with the Mfg VP.

The first approach seems to be growing in popularity, especially with the proliferation of outsourcing.

DE8. How can we apply S&OP to a job shop environment

S&OP works equally well in job shop environments as it does in higher volume, make-to-stock, or flow environments.

Typically jobs shops do quite a bit of make-to-order manufacturing. For products like these, S&OP will focus on the customer order backlog and average customer lead time, rather than finished goods inventory. For many job shop environments, it will make sense to do S&OP planning in hours rather than in pieces or "eachs".

DE9. S&OP is often used in retail sales - is it effective in a non- retail environments?

The development and evolution of S&OP started in a variety of companies, including those that make consumer goods and industrial products. Today it is being applied successfully in capital goods, chemicals, consumer goods, construction equipment, electronics, food and beverage, medical products and equipment, and pharmaceuticals - in fact nearly every manufacturing environment that we can think of.

DE10. We are a finish-to-order business with an average order delivery lead time of about 6 weeks. What would you estimate is a good target to reduce our delivery lead time by?

What lead time to the customer would provide a significant competitive advantage to your business? Assuming that it is something less than six weeks, is six weeks significantly longer than finishing time plus transportation time to the customer? Can it be reduced to that without anything else being done? Are there any opportunities to reduce transportation time and finishing time (finishing from the same point)?

To determine a reasonable target, you need to consider several factors:

customer desires and expectations

customer ability to give you final product specifications at a point in time

your manufacturing lead times

your supplier lead times

your manufacturing process design -- at what stage or step in the process the customer options or variables can be added to the product

the cost and risk of carrying various types of semi-finished inventory

Then you need to set an aggressive, yet realistic target that will meet the customer desires, by

assigning the needed resources to complete the orders in the target timeframe.

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If you have specific questions about this article or want to discuss it with us, call John Dougherty at 1 978-375-7808.

The Partners for Excellence specialize in helping companies set up comprehensive measurement programs and improving overall resource management performance. Contact us at 1 978-375-7808 or email This email address is being protected from spambots. You need JavaScript enabled to view it..